On Arbitrage‐Free Pricing of Interest Rate Contingent Claims

On Arbitrage‐Free Pricing of Interest Rate Contingent Claims

  • PETER RITCHKEN
  • KIEKIE BOENAWAN

Article first published online: 30th April 2012 DOI: 10.1111/j.1540-6261.1990.tb05091.x

Abstract


Unlike most interest rate claim models, the Ho‐Lee model utilizes full information on the current term structure. Unfortunately, the model has a major deficiency in that negative interest rates can occur. This article modifies the model such that interest rates are well behaved.

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